March flash: +2.6% y/y

MNI survey median: +2.5% y/y
MNI survey range: +2.2% to +2.7% y/y

February final: +2.7% y/y

FRANKFURT (MNI) – Eurozone consumer price inflation slowed slightly
less than generally expected in March to +2.6%, remaining above the
European Central Bank’s price stability target for the 16th consecutive
month, Eurostat estimated on Friday.

March’s annual rate, the slowest since August, suggests
price growth accelerated on the month from January’s 0.5% rise. An
official breakdown will be made available April 17.

German state CPI data this week showed higher energy prices fueling
transport costs. Clothing was costlier as well, due most likely to the
unwinding of winter sales.

Buoyed by tensions over Iran and supply outages in non-OPEC
members, oil prices remain well above $120 a barrel, posing risks for
the global economic recovery.

Yet there is no fundamental reason why oil prices remain so high,
Saudi Oil Minister Ali al-Naimi said: “It is the perceived potential
shortage of oil keeping prices high – not the reality on the ground.”

European Central Bank Governing Council member Josef Bonnici said
recent oil price trends pose a bigger threat to economic growth in the
Eurozone than to price stability.

“At present there are no clear signs that higher oil prices have
led to more permanent domestic price pressures in the Eurozone as a
whole,” he added.

Supporting this assessment, the March PMI poll showed prices
charged in the private sector easing (49.9) for the fourth consecutive
month despite a nine-month high in input price inflation (57.3).

Nevertheless, companies hope to pass on more of their rising cost
burden to clients. A European Commission survey showed a growing
proportion of firms in all major sectors looking to raise prices in the
next three months. Still, consumers’ worries about inflation over the
coming year have eased somewhat of late.

The ECB’s staff has revised up its inflation projection for this
year to +2.1% and +2.7% from +1.5% to +2.5% expected in December. For
2013, inflation is seen ranging between +0.9% and +2.3%.

Despite a further pick-up in February, annual M3 growth remained
well below the ECB’s guideline of 4.5%, suggesting medium-term domestic
inflationary pressures remain subdued.

“Market indicators of inflation expectations overall show no signs
of inflation above our medium-term objective,” ECB President Mario
Draghi said earlier this week. “Market expectations of long-term
inflation are fully consistent with our definition of medium-term price
stability.”

— Frankfurt bureau, +49-69-720 142; email: frankfurt@marketnews.com —

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